EM LATAM CREDIT: LATAM Credit Market Wrap

Fed communications since the June FOMC meeting have been largely cautious on the inflation outlook, with little enthusiasm to resume easing until at least September if not beyond given prevailing uncertainty. We go into detail in our Inter-Meeting Fed Communications analysis -  Download Full Report Here

• While this patient sentiment was reflective of the June meeting’s Dot Plot showing a split between participants eyeing either zero or two cuts by year-end, the limited incoming data since then doesn’t seem to have swayed views.
• The most notable development has been a newly-vocal minority of two on the 12-member FOMC who appear ready to argue for cuts to resume in July.
• Chair Powell largely took a July cut off the table from the outset, saying at the June FOMC meeting "it takes some time" for tariffs to be seen in prices he said then; "we feel like we're going to learn a great deal more over the summer on tariffs". He caused a minor stir on July 1 when he didn't refute the possibility of a rate cut at the July meeting: "Yeah, I really can't say - it's going to depend on the data. And we are going meeting by meeting. I mentioned, you know, how I'm thinking about that, but I wouldn't take any meeting off the table or put it directly on the table, it's going to depend on how the data evolve.
• To be sure, there are likely dissenters to a hold in July. Only two FOMC members have said that they would/could support a July rate cut, but both are permanent voters on the Board: Vice Chair Bowman ("I would support lowering the policy rate as soon as our next meeting ") Gov Waller (who delivered a July 17 speech titled "The Case for Cutting Now”).
• We could easily see two dissents to a likely July rate hold, and Bowman and Waller are likely the 3-2025 cut Dots in the June SEP.
• Our FOMC Hawk-Dove Spectrum has shifted since pre-June FOMC to reflect some of the latest commentary on future easing. 

• T

• RES 4: 0.6700 76.4% retracement of the Sep 30 ‘24 - Apr 9 bear leg
• RES 3: 0.6688 High Nov 7 ‘24
• RES 2: 0.6621 0.764 proj of the Jun 23 - Jul 1- 17 price swing  
• RES 1: 0.6601 High Jul 23
• PRICE: 0.6586 @ 16:13 BST Jul 23
• SUP 1: 0.6494/6455 50-day EMA / Low Jul 17
• SUP 2: 0.6435 23.6% retracement of the Sep 9 - Jul 11 bull leg   
• SUP 3: 0.6373 Low Jun 23 and a bear trigger  
• SUP 4: 0.6357 Low May 12

The trend set-up in AUDUSD remains bullish and this week’s gains reinforce current conditions. Today’s appreciation has resulted in a print above key short-term resistance at 0.6595, the Jul 11 high and bull trigger. This resumes the uptrend and sights are on 0.6688, the Nov 7’ 24 high. Support to watch is around the 50-day EMA, at 0.6494. A clear break of this EMA would highlight a stronger reversal.      

Decent SOFR & Treasury option volumes reported Wednesday, mixed trade with low delta puts outpacing calls by the close. Underlying futures weaker but off lows. Projected rate cut pricing cools slightly vs. late Tuesday (*) levels: Jul'25 at -1.2bp, Sep'25 at -16bp (-16.4bp), Oct'25 steady at -28.7bp, Dec'25 at -44.8bp (-45.6bp).

• SOFR Options:
  • +20,000 SFRU5 95.75/95.81/95.93/96.00 call condors 2.12-2.25
  • +3,000 0QZ5 97.25/97.75/98.00 1x3x2 call flys 4.0 ref 96.825
  • +14,000 SFRZ5 95.75/95.87/96.25/96.37 put condors 5.75-6.0
  • +5,000 SFRU5 95.87/96.12 call spds 1.25 over 95.62/95.75 put spds ref 95.835
  • +5,000 SFRU5 95.87/96.00/96.12 call flys w/ 95.62/95.75 2x1 put spds, 5.5
  • 2,000 SFRU5 95.62/96.00 strangles
  • -2,000 2QQ5/2QU5 96.37 puts, 1.75 ref 96.77
  • -5,000 0QU5 97.50/98.50 call spds vs. 2QU5 97.50/98.00 call spds, 0.75 flattener
  • -5,000 0QU5/2QU5 97.50/98.50 call spds, 0.75
  • -4,000 SFRQ5/SFRU5 96.00 call spds, 1.25 ref 95.835
  • Block/screen, +44,265 SFRQ5 95.62 put, cab (reduced from 103k)
  • Block/screen, +8,284 0QQ5 97.00/97.25 call spds, 3.0
  • 2,000 0QZ5 98.00 calls ref 96.865
  • 2,000 SFRX5 96.31/96.50 call spds ref 96.11
  • 7,200 SFRU5 95.62/95.68 2x1 put spds, 0.5 ref 95.835
  • 10,000 0QQ 96.87 calls ref 96.785
  • 3,000 SFRU5 96.00/96.37 call spds, 1.75 vs. 95.845/0.05%
  • +2,000 SFRU5 96.00/96.25 call spds, 1.5 vs. 95.845/0.05%
• Treasury Options:
  • 4,300 TYU5 110.5/112 call spds, 46 ref 111-05.5
  • over 17,400 FVU5 108.5 calls ref 108-14.5 to -14.75
  • +2,000 TYQ5 111 straddles, 26
  • +2,000 TYQ5 111/111.5 1x2 call spds, 10
  • -1,500 TYU5 111/112.5 call spds, 34 vs. 111-05.5/0.32%
  • -1,500 wk5 TY 111 puts, 20 vs. 111-02.5/0.43%
  • -1,500 TYU5 109 puts, 7